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Bearish Player Unfurls Butterfly Wings on Financial Select Sector SPFR Fund (XLF)

Today’s tickers: XLF, CMA, LYV, WYNN, MRVL, AVP & PX

XLF – Financial Select Sector SPDR ETF – The familiar shadow of a put butterfly spread appeared in the August contract on the XLF, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, suggesting shares of the fund may continue to decline in the next couple of months to expiration. Shares of the ETF are currently down more than 3.7% to $13.96 with 25 minutes remaining ahead of the closing bell. The bearish put butterfly spread involved the purchase of 10,000 now in-the-money puts at the August $14 strike for a premium of $0.62 apiece [wing 1], and the purchase of 10,000 puts at the lower August $12 strike for a premium of $0.17 each [wing 2]. The investor sold 20,000 puts at the central August $13 strike for a premium of $0.32 a-pop [body]. The net cost of the pessimistic play amounts to $0.15 per contract, thus preparing the investor to make money if shares slip beneath the upper breakeven price of $13.85 ahead of expiration day in August. Maximum available profits of $0.85 per contract are safe in the investor’s piggy bank if shares of the underlying fund decline another 14% from the current price of $13.96 to settle at $12.00 at expiration. Options implied volatility on the XLF jumped 17.5% to 35.96% by 3:38 pm (ET).

CMA – Comerica Inc. – Shares of the financial services firm edged 3.45% lower to stand at $37.25 with just 20 minute remaining in the trading session. Bearish investors dominated activity in CMA options this afternoon, with nearly all of the day’s volume centering on the put side of the field. One investor purchased a debit put spread, buying 7,500 now in-the-money puts at the August $37.5 strike for a premium of $2.50 each, and selling the same number of puts at the lower August $32.5 strike for a premium of $0.80 apiece. The net cost of the spread amounts to $1.70 per contract, and prepares the investor to make money should Comerica’s shares decline another 3.90% to breach the average breakeven point to the downside at $35.80 by expiration day in August. Maximum potential profits of $3.30 per contract are available to the responsible party if CMA’s shares plummet 12.75% from the current price of $37.25 to trade below $32.50 by August expiration. Finally, at approximately the same time the put spread was purchased, a chunk of 5,000 deep in-the-money put options changed hands at the July $40 strike and were likely sold for a premium of $3.00 per contract. The sale of the July $40 strike puts may be the work of the same investor banking gains on the sale of the now deep in-the-money puts, and subsequently initiating a large-volume debit put spread to continue to benefit from Comerica’s share price erosion.

LYV – Live Nation Entertainment, Inc. – The producer of live music concerts jumped onto our ‘hot by options volume’ market scanner late in the trading session after a large chunk of put options changed hands in the August contract. Live Nation’s shares are currently down 5.40% at $10.54 as of 3:50 pm (ET), yet the put player populating our screens appears to be selling the contracts in order to establish a bullish stance on the stock. It looks like one contrarian options strategist sold 13,000 puts at the August $10 strike to pocket an average premium of $0.60 per contract. The investor keeps the full premium received on the sale of the puts as long as Live Nation’s shares exceed $10.00 through expiration day in August. The parameters of the transaction indicate the put seller is happy to have shares of the underlying stock put to him at an effective price of $12.40 each in the event that the puts land in-the-money at expiration. Options implied volatility on Live Nation shot up 14% to stand at 61.36% with less than 10 minutes remaining before the final bell.

WYNN – Wynn Resorts Ltd. – Investors purchased put options on the owner and operator of casino resorts today with shares of the underlying stock trading 5.80% lower at $80.17 as of 11:25 am (ET). Wynn Resorts’ shares fell as much as 7.76% in morning trading to touch down at an intraday low of $78.49. Investors expecting to see shares of the underlying stock continue to decline in value purchased 1,000 now in-the-money calls at the July $80 strike for an average premium of $3.86 apiece. Put buyers at this strike price are positioned to profit should WYNN’s shares fall another 5.00% from the current price of $80.17 to breach the average breakeven point to the downside at $76.14 by expiration day. Bearish players also picked up another 1,000 puts at the lower July $75 strike for an average premium of $2.04 per contract. Traders long the July $75 strike puts make money if the casino operator’s shares decline 9.00% and slip beneath the effective breakeven price of $72.96 by July expiration. Finally, pessimists fearing sharp share price erosion picked up 1,100 put options at the lower July $70 strike for an average premium of $0.97 apiece. Wynn Resorts’ shares much plunge 13.9% from the current price to trade below the average breakeven point at $69.03 in order for July $70 strike put buyers to start to amass profits. The overall reading of options implied volatility on WYNN jumped 12.6% to 55.89% by 11:40 am (ET).

MRVL – Marvell Technology Group Ltd. – Bearish options trading strategies observed on the semiconductor maker late in the session on Monday were replicated on Tuesday with shares of the underlying stock continuing to descend. Marvell’s shares are currently down 4.10% to stand at $16.43 as of 12:07 pm (ET). MRVL’s shares have fallen more than 15.5% since touching an intraday high of $19.45 on Monday June 21, 2010. Pessimistic options players positioning for shares to head lower by expiration day next month sold 1,200 calls at the July $17 strike for an average premium of $0.38 apiece. If investors are selling the calls outright, as opposed to throwing in the towel on a previously established long call position, the full premium received today is theirs to keep as long as MRVL’s shares fail to rebound above $17.00 by July expiration day. Alternatively, traders may be ditching bullish positions on the stock today to take in whatever rapidly shrinking premium on the out-of-the-money calls they can get. Call selling spread to the August contract where options players sold 1,100 lots at the August $17 strike for an average premium of $0.82 each. Bearish individuals also sold 1,200 in-the-money calls at the August $16 strike for approximately $1.37 per contract. Ultra-pessimistic traders shed 1,100 August $15 strike call options to take in an average premium of $1.99 apiece. Investors enacting outright bearish bets on Marvell walk away with the premium pocketed on the sale of the call options if the shares of the underlying stock trade below the strike prices described through expiration day in August. If traders are merely closing out long call positions, they could be suffering net losses on the sale of the contracts depending on the price initially paid to buy the calls. Contrarian strategies were also observed on MRVL today, although such trading represented the minority of activity on the stock. Investors expecting shares to exceed $16.00 through July expiration sold 2,300 puts at the July $16 strike to take in an average premium of $0.52 per contract. Put sellers at this strike keep the full premium as long as the puts land out-of-the-money at expiration. But, if the puts are in-the-money at expiration, investors short the puts are obliged to have shares of the underlying stock put to them at an effective price of $15.48 each. Options implied volatility on Marvell Technology Group Ltd. is up 8.10% to 44.43 as of 12:25 pm (ET).

AVP – Avon Products, Inc. – Shares of the global manufacturer of beauty and related products fell 3.35% to $26.85 by 11:50 am (ET), inspiring bearish options traders to take action on the stock. Investors anticipating continued erosion in the price of the underlying shares through July expiration scooped up out-of-the-money put options. Pessimists purchased roughly 700 puts at the July $26 strike for an average premium of $0.45 apiece. Investors long the July $26 strike puts profit if Avon Products’ shares decline another 4.85% to breach the effective breakeven price of $25.55 by July expiration. Buying interest spread to the lower July $25 strike where bearish players picked up some 2,300 puts for an average premium of $0.30 a-pop. Investors long the lower strike puts make money if the cosmetics maker’s shares fall 8.00% from the current price of $26.85 and slip beneath the average breakeven point to the downside at $24.70 ahead of expiration day next month. The jump in demand for options on AVP helped boost the stock’s overall reading of options implied volatility 13.3% to 38.62% by 12:00 pm (ET).

PX – Praxair, Inc. – The industrial gases producer and designer of equipment that produces industrial gases for internal use and external sale popped up on our ‘hot by options volume’ market scanner during the first half of the trading session due to contrarian options activity in the July contract. Praxair’s shares are currently down 1.9% to stand at $77.86 just before 11:50 am (ET). One optimistic individual took a bullish stance on Praxair today despite the decline in the price of the underlying shares by selling short 2,000 puts at the July $75 strike for an average premium of $1.00 per contract. The investor keeps the full premium received on the transaction as long as PX’s shares exceed $75.00 through expiration day in July. The decision to sell the put options implies the trader is willing to have shares of the underlying stock put to him at an effective price of $74.00 should the puts land in-the-money at expiration. Options implied volatility on Praxair is higher by 12.2% to 30.36% as of 11:50 am (ET).


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